The common stock for El Viss Company currently sells for $20 per share. The firm just paid a dividend of $1.50,
and the dividend three years ago was $1.30.
Dividends per share are anticipated to grow at the same rate in the
future as they have over the past three years. Flotation costs for new shares will be 6% of the selling price.
Calculate the following:
a. the cost of retained earnings
b. the cost of external equity capital
a. g = 4.89% D1 = $1.50 x 1.049 = $1.57
Cost of retained earnings = $1.57/$20 + .049 = 12.75%
b. Cost of external equity = $1.57/($20 × .
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